Why is the Fortescue share price sinking 4% on Thursday?


The Fortescue Metals Group Limited (ASX: FMG) share price is sliding today, down 3.8% to $17 per share.

And it’s not just Fortescue shares under pressure.

The BHP Group Ltd (ASX: BHP) share price is down 2.7% and rival S&P/ASX 200 Index (ASX: XJO) mining share Rio Tinto Limited (ASX: RIO) has dropped 2.9% today.

So, what’s going on?

All eyes on China

Iron ore prices have slipped again, down 5.6% overnight to US$109 a tonne.

Iron ore topped US$144 earlier this month as investors digested news that China was easing its pandemic lockdown measures and the government was ramping up stimulus measures.

That saw the Fortescue share price at $21.63 on 8 June. Shares are down 21% since then.

China is the world’s largest importer of iron ore, a core steel making ingredient, and it’s the chief destination for Aussie exports. But prices for iron ore and the companies that dig the metal from the earth have come under pressure amid a falling outlook for demand from the Middle Kingdom.

According to Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group Ltd (ASX: ANZ), courtesy of The Australian Financial Review, “The promise of more economic support in China failed to boost sentiment. Expectations of a rebound in the real estate sector have slowly fallen as renewed outbreaks of COVID-19 lead to further lockdowns.”

Lachlan Shaw, co-head of mining research at UBS added, “There was a lot of expectation built into the iron ore price about more stimulus and construction in China in the second half, so to have signals coming through that counter that is testing the market’s patience.”

As for the growth outlook for the latter half of 2022, Caroline Bain at Capital Economics said (quoted by the AFR):

We expect China’s output to grow in y/y terms in the second half of the year given the much lower base. However, we still only forecast growth of around 1% this year given the government’s ongoing efforts to reduce the energy intensity of activity and carbon emissions. Demand, particularly from the residential property sector, is also likely to be subdued.

Fortescue share price snapshot

The Fortescue share price hasn’t escaped the wider selling pressure in 2022, down 14%. That compares to a year-to-date loss of 14% posted by the ASX 200.

Longer-term, Fortescue shares have widely outperformed, up 265% in five years.

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